Beginner’s Guide to the IPO Process

The Initial Public Offering (IPO) Process

An initial public offering (IPO) is when a private company becomes public by selling its shares on a stock exchange. This is a major event for any company, as it allows them to raise capital from the public and become a listed company.

The IPO process can be a complex one, and there are many steps involved. In this blog post, we will take a look at the key steps in an IPO process.

1. Select an investment bank

The first step in the IPO process is for the issuing company to choose an investment bank to advise the company on its IPO and to provide underwriting services. The investment bank is selected according to the following criteria:

  • Reputation
  • Quality of research
  • Industry expertise
  • Distribution, i.e., if the investment bank can provide the issued securities to more institutional investors or to more individual investors
  • Prior relationship with the investment bank

The issuing company will usually issue a letter of intent to the investment bank, which outlines the terms of the underwriting agreement.

2. Due diligence and regulatory filings

Once the investment bank has been selected, the issuing company must undergo due diligence and regulatory filings. This process involves the investment bank reviewing the company’s financial statements, business plan, and other documents. The investment bank will also file the company’s registration statement with the Securities and Exchange Commission (SEC).

The registration statement must contain detailed information about the company, including its financial statements, business plan, and management team. The SEC will review the registration statement and approve it before the company can proceed with the IPO.

3. Pricing

Once the registration statement has been approved, the issuing company and the investment bank will set the price of the shares. The price of the shares will be based on a number of factors, including the company’s financial performance, the market conditions, and the advice of the investment bank.

4. Stabilization

After the shares have been priced, the investment bank will stabilize the market for the shares. This means that the investment bank will buy and sell shares in the market to maintain the price of the shares at a certain level.

The stabilization process is important to prevent the shares from fluctuating too much in the early days of trading.

5. Transition to market competition

Once the stabilization period is over, the shares will be listed on an exchange and begin trading. The issuing company will now be subject to market competition, and its share price will be determined by the supply and demand for its shares.

The IPO process is a complex one, but it is an important step for any company that wants to raise capital from the public and become a listed company.